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The Safe Harbor 401(k) is a type of 401(k) plan that waives compliance testing requirements.  Best of all, establishing a Safe Harbor plan does not cost any more than a regular plan.

What is compliance testing?

Compliance testing (also known as discrimination testing) ensures that you don’t establish a plan that treats your employees unequally. That means that your highly compensated employees can’t contribute significantly more than your other employees. This is a worry for smaller businesses who have an unequal numbers of highly compensated vs. non-highly compensated employees.

So what’s in it for the employer?

• You ensure success with the plan administration by automatically passing the discrimination test
• You can deduct employer contributions from taxes as a business expense.
• You enhance your benefits package to reward current employees.
• You can take advantage of this as a recruiting tool for new talent.

What’s in it for the employees?

• Employees receive either a contribution of 3% of their compensation on their behalf or a generous matching contribution
• You can decide if highly compensated employees will receive the same match benefit.
• Highly compensated employees are able to deer the maximum dollar amount for the plan year, regardless of what the other employees defer.
• Both employee and employer contributions are pre-tax.
• Your mandatory employer contributions are 100% vested.
• Employee deferrals are always 100% vested.

This article comes to you from The Online 401(k), a provider of 401(k)s for small businesses. For more information or a free consultation on your 401(k) plan, contact John Wasiejko at jwasiejko@theonline401k.com or call us at 415.477.8800 xt 828.